The Cost of a Bad Hire: What to Do with the Wrong Person & How to Spot the Red Flags Beforehand

You hired Jeff six months ago. His user acquisition and retention strategies have exceeded expectations in the two quarters since he joined. Thanks to his efforts, business revenue has literally doubled.

Your customers are happy. Your investors are happy. But Jeff’s team? Not so much.

In planning meetings, Jeff rarely mentions ideas other than his own. During postmortems, it’s the exact opposite. At a recent company-wide weekly standup, he openly criticized two team members who weren’t performing up to standard. And over Slack, he’s bargained, urged, and coerced, other employees until they put in the overtime to make results happen.

To get proactive, you ask Sam — employee number three and the first in the growth team — what’s going on. “Don’t pull any punches with me,” you request.

“Jeff is great at what he does,” Sam tells you, “but he’s a shitty leader. A lot of his ideas are ad hoc and inconsistent — meaning he’ll kill them off after someone’s executed on them. He can be temperamental and unclear. It’s just hard working under him, especially because we’re performing so well.”

I love his skills. I just hate being managed by him. I think I’m going to move on soon if something doesn’t change.

On Thursday night, you and Jeff are the last two people in the office. You knock on his door and explain that Sam might be leaving. Jeff nods, saying, “He had trouble keeping up with the team. I’m not surprised.”

“He’s not the only person I’ve heard from, Jeff.”

“Who else?”

“I can’t say. But I’d gotten some feedback from your team, and I recommend you lighten it up. You’re absolutely knocking the targets into the cheap seats, but you’re burning your team out in the process.”

“You said it — I’m doing well! That’s fine, we’ll just hire some new people.”

Well, he’s got one thing right — at this rate, he’ll really be the only person on his team, and you’ll have to replace him.

Every company’s core resource consists of people. A team. And not every person fits well on every team. Of course, there are humorous tropes unanimously frowned upon. But usually, it’s more complicated.

That’s why it’s crucial to know exactly what a bad hire costs you, what to do after they’re onboard, and how to prevent bad hires in the future …

The Costs of a Bad Hire

According to a 2016 CareerBuilder survey, “75 percent of employers said they have hired the wrong person for a position, and of those who had a bad hire affect their business in the last year, one bad hire costs them nearly $17,000 on average.”

Another study puts that number quite a bit higher, “Among those reporting having had a bad hire, 27 percent of U.S. employers reported a single bad hire cost more than $50,000.”

And those are just single employees. Zappos CEO Tony Hsieh reports that his own bad hires have cost Zappos "well over $100 million" in total:

In ratio terms — the cost of a bad hire versus the cost of their salary and replacing them — The Society for Human Resources Management (SHRM) reports that the wrong person “could cost up to five times the amount of a bad hire’s annual salary. And the higher the person’s position and the longer their tenure, the more it will cost to replace them.”

Hiring the wrong person is bad for business. But it’s practically impossible to hire perfect team members, so …

After You Hire the Wrong Person

Every day you keep the wrong person on your team is another day you’re investing in them. Is it money down the drain? Or can you save them? Consider the opportunity cost — every day you spend with them, you could be working with someone who’s a better fit and investing in them.

You know you need to be decisive. So, before you make your decision, gather some other opinions. Was the feedback from someone who just didn’t like the new hire, or is there some validity to what he’s saying?

If the feedback is valid, you have two choices:

Keep and coach them, or

Let them go before the costs add up

Keep and Coach

Coaching requires that they’re able to take feedback and motivated to change. Their reputation and image amongst the team can’t be tarnished beyond repair. You can use this checklist from consultant Allison Rimm to help make your decision. Consultant Mary Dunlap writes, “Coaching is for clarification and education. Employers often think they have explained everything, but the employee may not agree. Having a third party (a trainer or other team member) evaluate the situation is also a good idea.”

Does the employee need specific information to complete tasks or contribute more fully?

Does the employee need to expand a specific skill?

Are performance expectations unclear or not defined?

Is the usually dependable employee suddenly showing behavioral problems (coming in late or appearing stressed, overwhelmed or distracted)?

Coaching may seem like the generous and merciful gesture, but it may not necessarily be received that way. A form of coaching, known as a “Performance Improvement Plan” is infamous for being a “cover your ass” exercise for the boss or employer, and for creating negative reactions and impressions.

Creative HRM writes, “However, unofficially all employees know that meeting all PIP goals is a mission impossible. They know the success rate of employees having been put on PIP previously. The statistics work.”

“I don’t take any pride in letting somebody go. I recognize that it affects somebody economically, can affect somebody’s personal life and is one big blow to the ego. But if you’re afraid of firing people you shouldn’t be an entrepreneur. No startup company has any spare capacity for dead weight.

“I’ve made every excuse to myself in the past, ‘I can’t fire him now, he owns the customer relationships and it’s a crucial point in our sales process.’ Or, ‘I haven’t given him a long-enough chance to prove himself — let me see how he develops’ or even, ‘it will have a big impact on morale because she is well liked. I can’t afford that right now.’

“I’ve heard VCs use similar rationale, ‘We knew the CEO wasn’t working out but we couldn’t fire him because it would have made it too hard to get a fundraising round done’ only to later regret not moving more quickly and reacting to the obvious discontent of the rest of the startup team.

“I’ve lived through every excuse. And for every firing procrastination I’ve made, one month afterwards I’ve always felt the exact same way, ‘Why didn’t I do this three months early?’

Trust me: if you know, you know. If you know, do it now. Delaying the inevitable is not going to make things smoother with your investors, biz dev partners, customers or employees.

A lot of people consider firing the last option, but if you’re in a fast-moving company, you often can’t afford that luxury of waiting. The longer you wait, the lower the morale of your company, and the more resources spent on this wrong person.

With this approach comes the challenge of maintaining a stable, upward, employee morale and retaining key players. It’s the risk of creating an environment where everyone feels like a sword is dangling above their head with a thin thread of string.

A couple of weeks (or months) of wrestling with a tough problem and the thread is cut. That level of stress, and paranoia, will not serve as a strong fundamental base for learning, sharing, and innovation. How could it?

Naturally, every manager and leader has their own take on this. Choose the one that works best for you and brings your team closer together, rather than one that repels them.

How to Prevent the Costs of a Bad Hire

When you hired Jeff, you did five rounds of interviews, you asked the goofy Google questions, you checked the references …

Jeff cleared all of them. Hell, it wasn’t possible for you to know everything about him — how could you know he was so stubborn and unreceptive to feedback? Or that his intensity might be too aggressive for the team?

Articles and books on hiring abound. Our goal, however, isn’t to map out that process exhaustively, but rather to identify the most effective ways to mitigate disaster.

Hiring the wrong candidate requires choices by both sides. One red flag to pick up on is not from the candidate, but from the employer’s side: not clarifying expectations andoutcomes.

Obviously, these get more clearly defined when writing out a job role, but you want to set specific KPIs to identify what success looks like for your future hire. On this front, Geoff Smart and Randy Street’s Who: The A Method for Hiring offers pointed advice:

Screening for tangible hard skills and results (e.g., “Raise growth rates by X%”) is important, but soft skills are not to be overlooked. Harvard Business Review explains, “Seasoned hiring managers will tell you that it’s much harder to coach behavioral issues than it is to teach someone the technical aspects of the job.”

During the interview, you want to make sure that you don’t ask hypothetical questions (e.g., “What would you if…”), but specific examples from the past (e.g., “What was an example of a time when…”) Don’t just listen to the answer and take it at face value ...

Ask possible hires to narrative problems they’ve faced in the past and listen to how they describe their colleagues and circumstances.

What tone are they using? How honest, or candid, are they? What could they have done differently? Why did the pick that option? What were their concerns? What crossed their mind?

If you’re hiring for a leadership role in a function you’re not familiar with, decide on the strengths you need and the weaknesses you can tolerate. For example, in Jeff’s case, you wanted both a great leader and someone who drives results at any cost. But right now, you can’t have both — can you tolerate his leadership style alienating the team, while he successfully grows your company very aggressively?

Another red flag is on the company’s side. Oftentimes, companies needed a team member yesterday. Naturally, they’re eager to hire fast. This works if your company is prepared to fire fast, and if your culture accepts that. Unfortunately, this speed might shortchange the process of evaluating candidates.

Bad Hire Red Flags

Questions

If someone doesn’t ask questions of you, that’s a red flag. Also, if they’re clearly canned questions, watch out. According to First Round, Zinch CEO Anne Dwane always asks candidates, “‘What have you learned in this conversation?”’ Learners will have been processing the conversation and cues, and will be able to share observations and takeaways.”

Job Hopping

Naturally, a string of job hopping is a red flag as it typically takes several months, if not a year, to get up to speed at a company). Venture capitalist Mark Suster explains it concisely, saying, “Hiring an employee has analogies to acquiring a customer. It costs a lot to “acquire” so you want your LTV (lifetime value) to be as great as possible given the upfront costs of acquisition. If you have limited resources you want to put them against your potentially best long-term customers. Hiring employees is no different. Frankly, I’m astounded that this is so controversial.”

Excuses

It’s also a red flag if someone tends to externalize failure during the interview, and doesn’t (or can’t) call attention the things they can control and change. The world makes its mark on them, and never the other way around. They constantly blame their previous team members, or manager, without seeing how they could’ve changed the story or outcome. This fundamental worldview is a tough one to change.

And of course, the natural eye for details — lateness, promptness in responses, and such — are all indicators. They might be brilliant, but they have to fit in with a team unit.

Closing Thoughts

In Jeff’s case, his proven skills as an individual contributor make him incredibly valuable, but his “leadership style” (if you could call it that), and close-mindedness to feedback and coaching, set off red flags in your mind. You hired a great team member, but at this moment, he’s not for the right role as a leader.

You have a few options.

One, you could build a completely new team around him with more resilient individuals and pray he doesn’t scare them off. Two, if he accepts it, you could effectively demote him into a senior individual contributor role, and figure out where to make room to hire another manager. Or three, get rid of Jeff completely and free up space in the budget to hire someone that’d be a better leader, and potentially (but not necessarily) drive slower growth.

Easy answers don’t exist, but the leaders and resources above will provide you with a path forward. Just remember: the only thing that isn’t an option … is doing nothing.